Retirement trends in Canada

This article first appeared in the spring 2003
issue of the Expert Witness.

The value of an individual’s
potential earning capacity depends in part on how long she will
be in the labour force. That is, for the calculation of lost
earnings, it is necessary to make assumptions concerning the
age at which the individual would have retired (and will now
retire).

The
focus of this article is to compare retirement ages of
Canadians over the five year period 1991–95 to retirement
ages of Canadians over the five year period
1996–2000.*
The findings show that for most educational and industry
categories, Canadians are retiring earlier than they did even
five years ago.

In the early 1980s, the median retirement age was close to
age 65. However, retirement ages decreased steadily from 1986
to approximately 1993. Notably, in 1987, the Government of
Canada reduced the age (from age 65 to age 60) at which Canada
Pension Plan benefits could be collected (albeit with a reduced
pension amount). I compare the retirement patterns of Canadians
over the 1991–95 period to the retirement patterns of
Canadians over the 1996–2000 year period to see if the
trend for earlier retirement has continued. In Table 1, the
distribution of retirement ages in Canada over the two
five-year periods (1991–95 and 1996–2000) is
summarized.

As shown in Table 1, in the five year period 1991–95,
the highest percentage of individuals retired in the 60 to 64
year age category. In the five year period 1996–2000, 60
to 64 still remained the most popular age group for retirement,
however the percentage of individuals retiring within the age
category had dropped by 6 percentage points (37 percent to 31
percent). The percentage of individuals retiring
“earlier”, in the 50 to 54 age category and 55 to
59 age category both increased – the former having the
largest increase (9 percent to 15 percent, or 6 percentage
points). This suggests that although many Canadians are still
choosing to retire at a “normal” retirement age (60
to 64), there is a shift to earlier ages.

Although the percentage of people retiring in their 60s
decreased within the time period considered, the percentage of
individuals retiring at age 70 or above remained unchanged.

Table 2 compares median retirement ages in Canada over the
periods 1991–95 and 1996–2000. (The
“median” retirement age is defined such that 50
percent of individuals retire at ages above that age and 50
percent below it.)

As shown in Table 2, the overall median retirement age has
decreased by one year, from approximately age 62
(1991–95) to 61 (1996–2000). The median retirement
ages of private employees also decreased by one year (from age
63 to age 62), however the retirement ages of public employees
decreased by two years (from 60 to 58). Self-employed
individuals experienced no change in retirement trends from
1991–95 to 1996–2000. The earlier retirement ages
of public employees are likely due to the generous pension
plans available to most public employees, which often offer
incentives to retire at earlier ages.

Table 3 summarises retirement ages by industry. As shown in
the table, many industry categories also experienced decreases
in median retirement ages between 1991–95 and
1996–2000. However, self-employed individuals did not
alter their retirement patterns in most industries and, if
anything, the retirement age of self-employed individuals may
be increasing.

Considering the “employees” category for the
goods-producing occupations, retirement ages remained constant
for all industries except for utilities and construction. These
two experienced a decline in retirement ages of 2 years. For
service-producing industries, all declined except management,
which remained constant at 65. Educational services showed the
largest decline in retirement ages over the two five year
periods – from age 61 to age 57, a drop of four years.
This may have resulted from restructuring within the education
sector that led to the offering of early retirement packages to
many teachers. If so, there may be a reversal of this decline
in the future (as fewer early retirement incentives are
offered).

Self-employed individuals again show higher retirement ages
than employees. Within the goods-producing industries, most
show an increase in the age of retirement (there was a decline
in manufacturing), which goes against the overall trend for
retirement patterns of Canadians. The service-producing
industries, however, showed a one year decrease in retirement
ages for the trade, management, and other industries; constant
retirement ages for transportation and professional industries;
and a one year increase in retirement ages for health care and
accommodation industries. The largest increase was in the
finance, insurance, and real estate industries, which saw a
four-year increase in retirement ages over 1991–95.

The above tables show retirement trends by industry, and the
statistics combine both male and female statistics, and also do
not consider specific levels of education. The statistics for
males and females, by education levels are summarized in Table
4.

Over 1991–95, men and women overall had similar
retirement patterns. That is, there was only one year
difference in the retirement ages at each education level. In
1996–2000, the male retirement patterns saw very little
change from 1991–95, with most education levels having
unchanged retirement ages. Only males at the high school
diploma level experienced a decline in retirement (age 61 to
60).

Females, on the other hand, have followed a decline at each
level by at least one year. Females with a university education
resulted in the lowest median retirement age (57) over
1996–2000. Also note that at the high school diploma
level, males and females experienced the same retirement age
(60).

I note, however, that the female retirement trends may be
underestimated. Retirement trends are based on historical
retirement, and may not reflect the trends of future
generations. That is, young women in the labour force now may
experience different retirement patterns than women who were of
retirement age in the last five years. The current generation
of women are obtaining higher levels of education, and are
participating in the labour force more, as compared to those
women of retirement age now. This suggests that their labour
force attachment may be greater than the attachment of the
older cohorts. Therefore, it may be theorized that young women
now in the labour force will retire later than women who faced
the retirement decision in recent years.

Also,
there is evidence to suggest that in the future, there may be
pressure for Canadians, both male and female, to delay
retirement. For example, in a paper entitled “Future Age
of Retirement”,**
Brown argued that as the baby boom generation moves into the
retirement ages, they will attempt to liquidate assets in order
to buy goods and services. This will reduce the value of the
assets due to the number of retirees attempting to do this.
Also, the smaller “baby bust” generation will be
the source of labour within the economy. The production in the
economy may slow due to the smaller labour force, resulting in
price inflation. This may force some potential retirees to
postpone retirement since the value of their assets will have
decreased. Thus, Brown’s prediction for retirement in
Canada is that the median retirement age will fluctuate between
age 60 and 61 over the next 47 years. That is, the overall
median age of retirement and the trend of decreasing retirement
ages may not continue on into the future.

Conclusion

Based on the above information, it seems that the median
retirement age in Canada has fallen from age 62 to 61 and,
depending on educational attainment and gender, the average
retirement of an individual may be as low as 57, or as high as
65. Self-employed individuals continued to retire at
approximately age 65.

For the purposes of loss of income calculations, it seems
reasonable to consider the education level of the individual,
since there are statistics available for both males and
females. In addition, if a career path has been established,
one should also consider retirement patterns of the specific
industry. For minors, the overall or educational statistics
would be appropriate.

Footnotes

* The source of the
data provided in this article is the Statistics Canada
publication Perspectives on Labour and Income, Summer 2002 Vol.
14, No. 2, and Summer 1997 Vol. 9, No. 2. [back to text of article]

** Brown, Robert L.
“Future Age of Retirement” Canadian Investment
Review, Fall 2002, pages 32-37. [back to text of article]

Kelly Rathje is a
consultant with Economica and has a Master of Arts degree (in
economics) from the University of Calgary.

Overview

This article compares retirement ages of Canadians over the
five year period 1991–95 to retirement ages of Canadians over
the five year period 1996–2000. The findings show that for most
educational and industry categories, Canadians are retiring
earlier than they did even five years ago.